Professor pulls no punches with young investors

Published 8:00 pm, Wednesday, April 29, 2009

So you're in your 20s or 30s, are making some money and are nervous about the economy these days. What do you do now?

"Just calm down, relax and go earn money. End of speech," Tom Alexander, professor of finance at Northwood University, told about 120 young professionals at a Wednesday luncheon. The audience at this Midland Area Chamber of Commerce event laughed.

But Alexander, who spent years in the banking and investment business before coming to Northwood, didn't end there. He chided members of the audience for spending their money on their Blackberries and iPhones, advised them not to buy stocks too early in their lives and said his philosophy for investments is "boring, really boring. But it works."

Although many say the world's falling apart and after seeing the downturn in the S&P 500 might think, "Oh, my goodness! Let's all go hide," Alexander charted economic trends highlighting the year he was born - 1950 - and as far back as 1920. Based on averages, the S&P 500 should be somewhere around 700-750, he said. And when he left his office to come to give his speech, it was at 840.

"Even today, we're probably higher than we ought to be," he said.

In basic terms, when the market takes a sharp rise, it eventually must take a sharp decline, he said.

"You really thought that 1,200-square-foot house was worth ($1.2 million)? Right! You really thought the house you live in was an investment? Whoever told you that? It's not!

"The world's not ending," he said. "So what are we worried about?"

Alexander advised investing in well-known funds such as Fidelity or Vanguard, which charge low management fees and can set up plans that take money automatically out of investors' paychecks. Young investors should stick with index funds until they have enough money - maybe $50,000 - to buy individual stocks.

Don't buy sector funds, he said, because one never knows which sectors will perform best.

Invest in solid companies, only those that pay decent dividends that increase every year. Even if the stock market takes a dive, those constant dividends eventually will pull a company's value back up, he said. It's the investor's job to wait out the downturn.

"You have to be careful," he added. "GM was once a solid company."

Investors should plan a strategy so they receive income increases when they retire, he said.

"You're not investing to feel good at parties," he said. "You're investing for your future, and your future's going to come a heck of a lot quicker than you think it does."